Correlation Between HDFC Bank and Apartment Investment

Can any of the company-specific risk be diversified away by investing in both HDFC Bank and Apartment Investment at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining HDFC Bank and Apartment Investment into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between HDFC Bank Limited and Apartment Investment and, you can compare the effects of market volatilities on HDFC Bank and Apartment Investment and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in HDFC Bank with a short position of Apartment Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of HDFC Bank and Apartment Investment.

Diversification Opportunities for HDFC Bank and Apartment Investment

0.7

Correlation Coefficient

HDFC Bank  Apartment Investment

Poor diversification

The 3 months correlation between HDFC and Apartment is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Bank Limited and Apartment Investment and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Apartment Investment and and HDFC Bank is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on HDFC Bank Limited are associated (or correlated) with Apartment Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Apartment Investment and has no effect on the direction of HDFC Bank i.e., HDFC Bank and Apartment Investment go up and down completely randomly.

Pair Corralation between HDFC Bank and Apartment Investment

Assuming the 90 days trading horizon HDFC Bank is expected to generate 1.32 times less return on investment than Apartment Investment. In addition to that, HDFC Bank is 1.24 times more volatile than Apartment Investment and. It trades about 0.03 of its total potential returns per unit of risk. Apartment Investment and is currently generating about 0.04 per unit of volatility. If you would invest  3,804  in Apartment Investment and on September 13, 2024 and sell it today you would earn a total of  1,486  from holding Apartment Investment and or generate 39.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.0%
Values	Daily Returns

HDFC Bank Limited  vs.  Apartment Investment and

HDFC Bank Limited

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HDFC Bank Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain fundamental indicators, HDFC Bank sustained solid returns over the last few months and may actually be approaching a breakup point.

Apartment Investment and

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Apartment Investment and are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong forward indicators, Apartment Investment is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with HDFC Bank and Apartment Investment

The main advantage of trading using opposite HDFC Bank and Apartment Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HDFC Bank position performs unexpectedly, Apartment Investment can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Apartment Investment will offset losses from the drop in Apartment Investment's long position.

The idea behind HDFC Bank Limited and Apartment Investment and pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.